How to lead during a crisis? 5 crisis leadership lessons

Hector Perez

From time to time businesses face challenging times that jeopardize their survival. When this happens, a strong crisis leadership is essential to increase the chances of your company surviving the crisis. 

The art of becoming a great wartime leader is something that can be learned by studying the actions of those who have managed to keep their businesses and organizations alive throughout the deepest crisis in history. 

In the following lines, we will share with you 5 crisis leadership lessons from the best leaders of all time on how to lead during tough times. 

Growth or greatness cannot be achieved by only cutting costs and streamlining processes – Even when you’re at the brink of bankruptcy 

This is the lesson Alan Mulally taught the business world by turning the future of Ford during the 2008 World Financial Crisis. 

When Mulally joined the legendary carmaker in September 2006, the forecast for profits for 2006, for automotive, was for a $17 billion loss. Ford wasn’t an exception in the industry; its stock fell from $17 in 2004 to roughly $8 in 2006 and finally plummeted to $1.01 in 2008. 

Any company with this landscape needs money, which can be achieved by debt and by adjusting costs and streamlining processes. Mulally thought this was important but added a special ingredient to the equation, focus. 

For Mulally, “focus” also meant having a plan. He drafted a plan focusing on financials but also focusing on people. The human part of the plan consisted of changing how people worked at Ford, which he thought was essential to achieve profitability over the long run. Among the main goals in the plan for workers, Mulally stated the following: 

  • “Foster functional and technical excellence”
  • “Own working together” 
  • “Role model Ford values” 

On June 30, 2014, Mulally left Ford and joined Google’s Board. His legacy was transforming an old, bureaucratic company in the brink of bankruptcy into a seamless globally integrated company with 19 profitable quarters in a row. Mulally masterminded this transformation during one of the grimmest periods of global economic and automobile history, in the midst of the worst and longest financial and economic crisis since the Great Depression.

This image shows Ford's stock price during Mulally's tenure as CEO.

You can make a lot of things happen if you are viewed without suspicion; build credibility

Jumping in a new position has its challenges. Now imagine becoming CEO of a family-owned and run business, which never has had an outsider in charge of the direction of the company. That was the challenge for Jørgen Vig Knudstorp, a former McKinsey consultant, who became CEO of the toymaker in 2004.  

Jørgen Vig Knudstorp is the executive chairman and former CEO of the Lego Group.

When Knudstorp joined the company, things were not shiny for Lego. At the time, the company was losing about $1 million a day, yes things were that awful! Also, it has broadened its business lines to things like clothing and rolled out pre-assembled toys that distanced children from the building experience.

There was a lot of stuff to do to save the company from its grey financial fate. But besides working to transform Lego into the world’s most profitable toymaker, Knudstorp had it clear: he had to build credibility around his name to be able to make the changes the company needed. 

In his own words in an interview he gave to the Harvard Business Review, Knudstorp described what he meant by building credibility:

“You can make a lot of things happen if you are viewed without suspicion, so I made sure I was approachable. In Danish, we have an expression that literally translates as “managing at eye level,” but it means being able to talk to people on the factory floor, to engineers, to marketers—being at home with everyone.”

The progress the company made under the first years of his leadership can be described in three phases. 

At first, it was all about cash flow. Knudstorp managed to focus on reducing debt, selling off peripheral businesses, and cutting the number of pieces Lego made. Also, he promoted top-down management and tight fiscal control. 

Then when financials started to become greener, Lego’s strategy was to look for an increase in sales volume by opening new markets in Asia and growing revenue in Europe while the U.S. had a stagnant toy market during the 2008 crash. 

Besides the operative strategy, Knudstorp knew leadership had to change from a wartime vision to a peacetime approach to ensure the business continued to grow. He injected into Lego’s DNA the mission of becoming not only the biggest toymaker but also the best. 

Implementing a strategy of niche differentiation and excellence required a looser structure and a relaxation of the top-down management style we had imposed during the turnaround because the company needed empowered managers. For example, I stopped participating in weekly sales-management and capacity-allocation choices and pushed decisions as far down the hierarchy as possible.

Lego went from being almost bankrupt to becoming the world's largest toy maker thanks to its CEO crisis management style

Just before stepping down as CEO, Knudstorp had lego in the third phase of his strategy, which focused on organic growth. This last stage also needed a change of leadership because the business was now in a position where it needed managers capable of taking greater calculated risks; a skill the majority of the leaders at that time in the company lacked due to the discipline they had to carry out during their survival attempt. 

Knudstorp is clearly a great wartime leader who change not only the financials of a legendary company but also its culture and mindset to survive and then become the biggest toymaker in the world. 

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Admit mistakes, apologize to your users, get to work and change things

In the middle of one of the biggest financial crises in history, thousands of customers go online saying your product sucks. You do several focus groups and get the same feedback, “your pizza bread is just like cardboard.”

What do you do? Well, Patrick Doyle had it clear. Just after becoming the CEO of Domino’s Pizza, once upon a time the fastest growing franchise business in the world, Doyle jumped into national TV and YouTube with a video in which he admitted the reviews on the quality of the products were bad and showed how the brand was starting to work on a new recipe. They changed everything from the crust to the cheese and even the sauce. 

“We launched a campaign in the early 2008 named you got 30. This took us back to our roots of providing a fast delivery but consumers weren’t happy about it. It was at that point when we said we know the issue is the quality of our pizza.”

The honesty and transparency perceived by consumers boosted sales immediately. Under the new campaign and new recipe, profit more than doubled in the fourth quarter of 2009, increasing sales for that quarter by $23.6 million.

Doyle’s wartime leadership style didn’t stop at changing the pizza. He also understood the need to provide customers with better service. In a conference, Doyle said a phrase no one was expecting to hear from the CEO of a pizza company: 

“We are as much a tech company as we are a pizza company,”

And he was right. Out of the 800 employees working in Domino’s HQ 400 work fully in software development and analytics. Such a workforce has allowed the company to offer its clients a robust App, an accurate tracking system and even a way for them to order directly via Twitter. 

All these technological investments and Doyle’s ability to move forward the company has changed history in the restaurant industry. Domino’s stock was valued at $3.03 in November 2008 and nowadays in 2020, it’s way over $300.

A strong culture can create opportunities from a crisis

While most of the world was taken by surprise by a fierce financial collapse in 2008, there was a hedge fund ready to increase its profitability; it was Ray Dalio’s Bridgewater Associates. 

Besides his well-known style and long history of studying the markets, Dalio’s firm had another more powerful secret weapon ready to be used to boost the profits by 8% while the whole economy was crashing; its culture.

At the highest level, it is our culture. Bridgewater operates in very different ways from most firms, and that drives our different results. 

According to Dalio’s own words, Bridgewaters understand the markets as “a machine that keeps doing the same things over and over again, with some of the most important ones happening about once a lifetime, so most people are surprised by them.”

Besides their vision of the market, there are more interesting facts about Bridgewater culture. They are known for having a “radically transparent culture” where all employees evaluate each other’s performance and even you can get fired if you’re not able to criticize your peers and even your managers if there’s something wrong about their performance. About 30% of the employees are gone in their first 18 months. 

It’s clear Dalio has built a strong company culture that has allowed him and his stakeholders to profit even when the markets are tanked. 

Have a Plan

It sounds silly but if you study all these success stories they all have one thing in common, all CEOs had a clear plan with a path to success. Having a strong plan not only helps you set your goals and vision, but it’s also a clear signal of trust and confidence to your team.

Being able to raise your team’s morale in a time of crisis is essential if you want to succeed. When a crisis hits, having a team ready to carry out your plan and a strong leader on the top to support it is the only way to keep your business alive. 

These were our 5 crisis leadership lessons. It’s important to study the best wartime leaders of our time so we can perform better when a crisis knocks on our doors. 

We hope you enjoy the article, and if you have questions or comments leave them in the box below or reach out to us!

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